UK economy forecast to ‘run out of steam in the coming months’

The British Chambers of Commerce (BCC) has downgraded its expectations for economic growth this year, amid soaring inflation, tax rises and geopolitical crises, including Russia’s invasion of Ukraine.

The BCC predicted growth of 3.6%, down from 4.2% in its previous forecast in December, warning the UK economy is forecast to run out of steam in the coming months.

The downgrade largely reflects a deteriorating outlook for consumer spending and a weaker-than-expected rebound in business investment.

Consumer spending is forecast to grow at 4.4% this year, down from its previous forecast of 6.9%, reflecting the “historic squeeze” on real household incomes from high inflation, said the BCC.

In addition, business investment is predicted to grow at 3.5%, down from the previous forecast of 5.1%.

“Our latest outlook suggests a legacy of Covid, and Brexit, is an increasingly unbalanced economy with a growing reliance on household spending to drive growth,” BCC head of economics Suren Thiru says.

“Such economic imbalances leave the UK more exposed to economic shocks and reduces our productive potential.”

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“The downside risks to the outlook are increasing. Russia’s invasion of Ukraine could drive a renewed economic downturn if it stalls activity by triggering a sustained dislocation of supply chains or a more significant inflationary surge.”

Tightening monetary and fiscal policy too aggressively will also risk weakening the UK’s growth prospects further by undermining confidence and damaging households’ and firms’ finances.

A Treasury spokesperson added: “We know global developments are creating significant economic uncertainty but the support we have provided throughout the pandemic has put us in a strong position to deal with these challenges, with the fastest growth in the G7 last year and the unemployment rate close to pre-pandemic levels.”

“We are striking the right balance, with over £20 billion to help with the cost-of-living this financial year and next, and grants, loans and tax reliefs for businesses.”

The government insist that boosting growth and productivity remain a key priority and they will continue to invest in “capital, people and ideas” to make that a reality.

The news comes as the government recently announced consumers will not face an additional levy on their online purchases for the time being, saying “no decisions have been made yet.”

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